Once again the IRS has sent a shiver of fear throughout the expat community. Many of our clients are sending e-mails panicking because of news from friends, family, and the media that the IRS is asking for yet another form that has severe penalties that may be assessed if not filed.
The new tax law taking effect for 2011 filers is FATCA – Foreign Account Tax Compliance Act. The impact for most taxpayers is the newest form required by the IRS is Form 8938 – Statement of Specified Foreign Financial Assets. This form must be filed by all US citizens and green card holders that meet the threshold for filing. In many ways, Form 8938 is a duplication of the FBAR requirements for Form TD F 90-22.1. The biggest differences are when, where, and how the information is reported.
The thresholds are different depending on where you live and your filing status. The IRS broke the thresholds into two major categories of filers and three sub categories with different thresholds. There are also two different thresholds for each category. Simple so far, right?
The two different thresholds for each category are the value of your foreign financial assets on the last day of the year and the value of your foreign financial assets at any time during the year. We created a simple outline to show the filing thresholds for all of the categories. The outline shows the Residency, Filing Status, Threshold for year-end value, and Threshold for a value during the year
United States – Single – $50,000 – $75,000
United States – Married Filing Joint – $100,000 – $150,000
United States – Married Filing Separate – $50,000 – $75,000
Foreign Country – Single – $200,000 – $300,000
Foreign Country – Married Filing Joint – $400,000 – $600,000
Foreign Country – Married Filing Separate – $200,000 – $300,000
Now for a little more complexity, there are a number of variables that will need to be applied in each individual situation that will include currency exchange rates and types of financial assets at the very least.
Many of our clients have fears that Form 8938 requires them to report their homes, cars, jewelry, and other physical assets. This is not true! Form 8938 only requires you to report foreign financial assets. Here is a basic list of what needs to be reported.
• Financial accounts held in a foreign financial institution (e.g. checking, savings, pension)
• Stock or securities issued by a non-US person or entity (e.g. stock traded on a foreign stock exchange)
• Interest in a foreign entity (e.g. ownership in a partnership)
• Financial interest in any instrument or contract involving a non-US person or entity.
We have provided information that should provide you with a summary of what is required by the new IRS tax laws. If you need more information or if you still have questions, contact an INTAXACT CPA today for answers and solutions.